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Operations review

Africa and Asia

Africa and Asia growth momentum continued for the year, with lager volume growth of 34% (organic growth of 26%) and reported EBITA growth of 11%, despite currency weakness in some of the African countries. Organic volume growth has been assisted by innovation, packaging upgrades and brand renovation. Whilst EBITA increased in Asia and in Africa, despite headwinds in Botswana, geographic EBITA mix in Africa combined with faster revenue growth in Asia resulted in a lower EBITA margin for the region, as had been anticipated.

Africa

Lager volumes for Africa, excluding Zimbabwe, grew 7% for the year while growth in total volumes, excluding Zimbabwe, was 11%. Continued economic growth in most countries, ongoing brand renovation and further improvements in distribution networks combined to deliver this result. Zimbabwe continues to experience difficult economic and political conditions with foreign currency shortages a key issue.

Mozambique enjoyed a third consecutive year of volume growth, with lager volumes advancing 11% on the back of improving economic fundamentals, a strong brand portfolio and new distribution centres in the North. Our key brands, 2M, Manica and Raiz, performed well. Recent flooding in the Zambezi river delta did little to hamper the ongoing volume growth. During the year a new brewhouse was commissioned in Maputo, with a further new brewhouse planned for Beira in the coming year.

Tanzania posted lager volume growth of 8% with recent packaging changes in key brands driving much of this growth. Castle Lager was reintroduced in a new long neck bottle, posting double digit growth, notwithstanding its price premium, and our local premium brand, Ndovu, was successfully relaunched as a pure malt lager. Profitability was constrained by the effects of currency weakness and higher input and energy costs.

Uganda's lager volumes again grew in double digits this year with volumes up 12%, and our core mainstream brands of Nile Special and Club enjoyed good growth during the year. Profitability improved despite increased fuel costs.

Following the effects of prior year devaluations and pressure on consumer disposable incomes, Botswana recorded another year of decline with lager volumes down 4%. Cost pressure was evident throughout the year as the operation is heavily reliant on imported goods and services with the consequent impact on profit margins. The final quarter, however, reflected growth in all beverage categories.

Elsewhere in Africa, Ghana benefited from a successful new brand launch, Stone Lager, which drove market share gains and improved profitability. Our innovative sorghum-based Eagle lager continues to play a meaningful role in the economy segment across the region and is now available in Uganda, Zambia and Zimbabwe and was launched in Tanzania in April.

CSD volumes in Angola grew by 33% to surpass 2.5 million hectolitres. Ongoing capacity upgrades are planned to meet ongoing growth. The Empressa N'Gola brewery in Southern Angola, which SABMiller has managed under contract for many years, was successfully privatised in December 2006, with SABMiller acquiring a 45% shareholding.

Castel delivered a strong performance, with lager volumes growing 10% while CSDs increased by 10%. Ethiopia and Angola provided above average growth with continued improvements in the more established markets in Cameroon, Gabon and Morocco.

Asia

China maintained the momentum reported at the half year with organic volume growth for the full year of 30%, well above industry growth rates, and all regions posted growth. Our national brand, Snow, showed a higher growth rate, with annual volumes approaching 30 million hectolitres. Snow is now the leading brand by volume in China, driven by the combined impact of national brand campaigns and the expansion of our production base.

The greenfield brewery in Guangdong province was commissioned in February 2006 and produced volumes of 550,000 hl in its first full year. During the year we acquired five breweries and in January 2007 we announced the acquisition of the 38% minority shareholding in the Blue Sword group of companies in Sichuan Province which was completed in April 2007.

Increases in energy costs impacted the business, and price increases were insufficient to offset the full effect of the cost increases and higher marketing spend. Profit margins were also impacted by start-up costs and initial losses at our greenfield breweries.

India also recorded excellent lager volume growth of 36% on a pro forma basis, above industry growth rates. Volumes were notably strong in Andra Pradesh as well as Punjab and Haryana, where industry reform provided a boost to volumes. Continuing capacity expansion is planned to meet demand in this fast growing market. The Foster's brewery and brand acquired during the year have been successfully integrated and production of the brand will be rolled out to other of our breweries in the coming year.

Our new joint ventures in Australia and Vietnam commenced trading during the second half of the year.

With strong volume growth expected across the division, increased capital expenditure in a number of countries will be necessary to meet capacity requirements.

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Financial summary Africa and Asia
2007
Africa and Asia
2006
%
Group revenue1 (US$m) 2,674 2,221 20
EBITA (US$m) 467 422 11
EBITA margin (%) 17.5 19.0  
Sales volumes (hl 000):      
- Lager 68,067 50,956 34
- Lager organic 64,429 50,956 26
- CSDs 4,796 4,061 18
- Other beverages 15,137 13,093 16

1 Includes share of associates revenue

 

* Castel volumes of 15,407 hl 000 (2006: 13,991 hl 000) lager, 9,424 hl 000 (2006: 8,557 hl 000) CSDs, and 3,320 hl 000 (2006: 3,015 hl 000) other beverages are not included

 

Key focus areas

  • Build brand portfolios of leading mainstream and premium brands, and affordable branded alternatives
  • Improve product availability with capacity expansion and extended distribution beyond major cities
  • Invest to meet growing demand and increase efficiency and productivity
  • Capitalise on our market leadership position in China to further build Snow as the country's largest brand and enhance profitability
  • Further build our operations across India, Vietnam and Australia